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Torchmark (TMK) Continues to Benefit from Premium Growth

Torchmark Corporation TMK has been witnessing substantial growth in premium revenues driven by higher premiums from Life and Health Insurance businesses. This in turn should boost the company’s earnings going forward. Notably, the company has been successfully meeting the growing demands and expectations of clients for years through a solid product and service portfolio.

Notably, Torchmark has a favorable Value Score of A. Back-tested results have shown that stocks with an impressive Value Scores of A or B when combined with a top Zacks Rank #1 (Strong Buy) or 2 (Buy) become lucrative investment bets.

The life insurer’s most important distribution channel — American Income Exclusive Agency — has been witnessing higher net sales, driven by an increased agent count. The company projects life sales to remain between flat and up 1% in 2018, while for 2019, the metric is anticipated to grow in the range of 3-7%. Further, expected producing agent count of approximately 7,000 in 2018 and growth in the range of 1-7% in 2019, is likely to lead to higher premiums.

Of late, the company is focusing on agent training programs and financial incentives, which will motivate the agents at all levels with justified rewards. It will also enable the company to invest in the development of the same. Such initiatives are expected to increase agent retention and sales activity, thereby resulting in premium growth.

Global Life operates in a relatively non-competitive market, selling basic life insurance products to middle and lower middle-income households and staying beyond the stiff competition purview. The company’s focus on expanding margins rather than boosting sales or sales levels or margins as a percentage of premiums is yielding results. Torchmark anticipates the underwriting margin to range between 17% and 18% for 2018.

The insurer has been witnessing improved investment income over the past few years on the back of gradual rise in interest rates as well as a decline in the negative impact of lengthy delays in receiving Part D reimbursements. We expect this momentum to continue in the near term driven by a better interest rate environment and higher new money rates. In 2018, the company anticipates about 2% rise in excess investment income and on a per share basis to grow about 5%.

A robust capital position aids the company to return value to its shareholders via share buybacks and dividend hikes, consequently raising optimism among investors. The company has been successful in generating free cash flow consistently, with the metric estimated to be around $325 million in 2018. This in turn will aid the life insurer to regularly participate in share repurchases and dividend payouts.

The consensus mark for current-year earnings per share is pegged at $6.13, representing a year-over-year increase of nearly 27.2% on 4.4% increase in revenues of $4.3 billion. For 2019, the consensus mark for earnings per share is pegged at $6.62, reflecting a year-over-year rise of around 7.9% on 2.9% increase in revenues of $4.4 billion. The company's long-term growth is pegged at 13.7%.

Shares of Torchmark are trading at a price-to-book multiple of 1.77, lower than the industry average of 1.79. Price to book value ratio is the best multiple for valuing life insurers because of large variations in their earnings results from one quarter to the next. This ratio essentially measures a life insurer’s current market value, relative to what it would be worth if it chooses to shut down. Underpriced shares with solid fundamentals are lucrative bets.

Zacks Rank and Share Price Movement

Currently, the life insurer carries a Zacks Rank of 2. Shares of the company lost 3.1% year to date, compared with the industry’s decline of 22.8%. We believe the aforementioned positives will help the stock to recover and drive up in the near term.

Other Stocks That Warrant a Look

Investors interested in other stocks from the same space can consider Manulife Financial Corporation MFC, Primerica, Inc. PRI and American Equity Investment Life Holding Company AEL, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Manulife provides financial advice, insurance, and wealth and asset management solutions for individuals, groups, and institutions in Asia, Canada, and the United States. The company delivered positive surprises in three of the trailing four quarters with average beat of 6.03%.

Primerica distributes financial products to middle income households in the United States and Canada. The company pulled off positive surprises in three of the previous four quarters with average positive surprise of 5.19%.

American Equity provides life insurance products and services in the United States. The company surpassed estimates in the preceding four quarters with average earnings surprise of 12.59%.

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